Thursday, 22 October 2009

Too big to do anything about?

The Governor of the Bank of England’s use of Churchillian rhetoric a few nights ago in a speech on banking reform (“never in the field of financial endeavour has so much money been owed by so few to so many”) opened a new front in the on-going Battle of the Bonuses, on this side of the Atlantic at least.

We now have two of the biggest names in banking and regulation effectively wanting to break up the banks by splitting off commercial banking activities (clearing, loans, mortgages etc) from investment banking activities (trading, arbitrage etc) where the big profits and bonuses are being made. The other? Paul Volcker, former Chairman of the US Federal Reserve who advocates the re-enactment of the Glass-Steagall Act, first passed by the Roosevelt administration in the midst of the Great Depression.

How likely is this? Well, for a current Governor of the Bank of England to be talking this way is certainly a surprise and is probably the start of a Bank of England ‘land-grab’ which will be enacted if we get a Conservative Government, which has pledged to get rid of the FSA and return banking regulation the Bank.

However, our current Chancellor of the Exchequer has publicly said that a modern Glass Steagall is not on the cards and Volcker’s views are finding little traction in Washington (according to the New York Times).

My own view is that there is a lack of political will to do anything about this, beyond words. I’m not sure that these banks are now ‘too big to fail’. It’s more like they are so well connected, politically and economically that they are now ‘too big to do anything about.”

A very quick PR point. Banker confidence was on full display when the official spokesperson for the British Bankers Association was asked to comment on the bonuses. Apparently, we all need to “move on”.


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